The Nikkei 225 Average fell 2.5% to 10,009.52 after briefly slipping below the psychologically important 10,000 point level during the session for the first time since July.

In foreign exchange markets, the spotlight was on the rising Japanese yen. The U.S. dollar was buying 89.50 yen, down from 89.76 yen late in New York trade on Friday. The dollar hit 88.23 yen earlier, an eight-month low, with the yen bolstered by increased risk aversion as well as exporters' yen purchases for settling accounts before the end of the third quarter.

Japanese Finance Minister Hirohisa Fujii told reporters earlier on Monday that the yen's recent strengthening trend was "not abnormal." He added that it was a mistake to use "foreign exchange dumping" to defend industry.

The market was pricing in the risk of weaker-than-expected earnings due to the stronger yen, said Phoenix Securities manager Mamoru Nakajo. "Earnings at Japanese companies will be bad, with exports hurt by the yen's strength and domestic businesses also struggling amid deflation."

Chinese stocks tumbled on concerns new listings on the Nasdaq-style Growth Enterprise Market may divert attention from the main board and sap liquidity. The Shanghai Composite lost 2.7% to 2763.53, with Hong Kong's Hang Seng Index shrinking 2.1% to 20588.41 and Taiwan's Taiex losing 0.8%.

South Korea's Kospi dropped 0.9%, Australia's S&P/ASX 200 gave up 0.8% and the Philippines' main index lost 1.3% after tropical storm Ketsana dropped the heaviest rain in more than 40 years on Manila and neighboring areas of Luzon island on Saturday. The Philippine government said Monday it couldn't cope with massive flooding that has displaced nearly half a million people.

In afternoon trading, Singapore's Straits Times Index fell 1.4%. Indian markets were shut for a public holiday.

Dow Jones Industrial Average
DJIA, +0.32%
futures were recently 24 points lower in screen trade after the DJIA closed down 0.4% on Friday on weaker-than-expected housing and durable-goods-orders data.

Resource stocks fell across the region on weakness in commodity prices, with gold miners falling especially hard as the metal extended its fall below $1,000 a troy ounce. Spot gold was recently down $3 at $987.70, while November crude-oil prices gave up 56 cents to $65.46 a barrel on Globex.

In Hong Kong, shares of China Unicom (Hong Kong)
CHU, +1.47%
(762) fell 5% after South Korea's SK Telecom said it will sell its 3.8% stake in Unicom back to the company for $1.28 billion to improve its financial position and expand its convergence business in China.

In other foreign exchange trading, the euro was hit by increased risk aversion, and touched a two-month low of 129.82 yen. It was recently at 130.94 yen from 131.72 yen in late New York trade on Friday. The euro was at $1.4625, from $1.4672. The British pound continued its recent sell-down against the greenback. Sterling was recently buying $1.5887, compared with $1.5932 on Friday.

Lead December Japanese government bond futures rose, tracking gains in U.S. Treasurys on Friday and weakness in Tokyo shares. The contract was up 0.27 at 139.31 points. The 10-year cash bond yield was down 3.0 basis points at 1.280%.

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